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Follow-up on Deming’s System of Profound Knowledge

If you enjoyed the post earlier this week, on W Edward Deming’s System of Profound Knowledge, then you may also enjoy these two short (under 3 mins) videos on YouTube, from the Institute for Healthcare Improvement.

These explain the need for and interpretation of  the four parts of Deming’s system:

  1. Appreciation for the system
  2. Knowledge about variation
  3. Theory of knowledge
  4. Psychology

Part 1 sets out the problem of cause and effect


Part 2 gives an example of the
four parts of Deming’s System of Profound Knowledge



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On Competition: Five Forces

On a high shelf in my study are the books I rarely refer to.  Some turned out to be a disappointment after I bought them, but some, however, are old friends.  It’s just that I no longer need to refer to them much.

Years ago, when I was asked to develop a seminar on business strategy, three of them were my constant companion as as I thought through and planned the session.  And the first model I thought of back then features at the start of Chapter 1 of one of those books, Michael Porter’s ‘On Competition’.  This is, by the way, a hefty hardback (lovely to use).

I’ve been re-reading parts of it in preparation for a new seminar: ‘the Three Hour MBA’.

Michael Porter

Michael PorterThe same model appears in the delightfully neat ‘Strategy Pocketbook’ by Neil Russell-Jones.  In it, Jones describes Porter as ‘one of the most influential strategic thinkers and writers’ and his classic book ‘Competitive Strategy’ is required reading on just about every MBA course.


Porter’s Five Forces

Not surprisingly, Michael Porter starts his book (which collects a dozen or so of his best articles) with the model that bears his name: Porter’s Five Forces.

Porter's Five Forces that govern competition

Porter analyses the basis of the power behind each of these five forces, and the barriers to entry of new players or substitute products.  The model forms a basis for developing a strategy that positions your company and influences the forces around it.

Three Strategies

Porter suggests three generic business strategies to position your company to take advantage of your competitive environment.

Porter's Three Generic Business Strategies

Systems Thinking

Perhaps Porter’s model is showing its age.  In the 1980s, the world seemed a simpler place.  Now, we understand far better, how inter-connected things are.  Suppliers are dealing directly with customers and business are making ever-more complex alliances.  How does access to capital (the last couple of years worth of headline news) affect competitive forces, and what about other resources, like people and energy?  And what are the affects the forces of social responsibility and regulation?

So here’s the deal

Porter’s Five Forces is an entry level strategy tool.  It is a valuable insight into the workings of a competitive market and a great starting place.  But do consider the lessons of Richard Rumelt, who argues that a good strategy starts from a robust understanding of the situation, with which this model can help, but needs much more in addition.

Some Management Pocketbooks you might like.

The Strategy Pocketbook

Neil Russell-Jones’ Strategy Pocketbook is stuffed full of handy tips and strategy planning tools, including Porter’s Five Forces and a ‘competitive intensity’ tool that is based on it.  It also has lots of other valuable tools and models.


Also take a look at:

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What makes good business strategy?

The world of company strategy development is fertile ground for those of us who like management models.  The options range from simple – nay simplistic, to byzantine complexity.

However, I would argue that few of these strategic tools can ever determine a strategy for your business – what the best tools can do is give you insights into the strategic context, or help you explore the potential consequences of a possible strategic decision.

Good Strategy / Bad Strategy

In a new book, Professor Richard Rumelt of the UCLA Anderson School of Management, describes what he terms ‘bad strategy’.  He has been articulating his ideas for several years now, and you can get a five minute introduction to his ideas from the short video interview from 2008, below.


Professor Rumelt’s ideas are simple and compelling – indeed, one of his key points is that a good strategy is, itself, simple and compelling.

A Good Strategy

In Good Strategy/Bad Strategy: The difference and why it matters, Rumelt argues that a good strategy:

  • is based on a robust diagnosis of the situation and the problem to be solved
  • offers a simple solution to a problem – ‘simple’ meaning no more complex than it needs to be: not simplistic
  • follows a clear policy framework that provides constraints for the strategy
  • allows participants to co-ordinate their actions and to create a focused outcome

A Bad Strategy

A bad strategy, on the other hand,

  • fails to address the real problem
  • sets goals but makes no attempt to articulate how to achieve them
  • has a vast array of objectives with little prioritisation
  • hides poor analysis inside jargon, buzzwords and superficial analysis

You can hear Professor Rumelt for yourself or read his article ‘The Perils of Bad Strategy’.


Good Tools

With Professor Rumelt’s warnings ringing in our ears, we need to understand some of the tools we can use to inform our robust diagnosis and clear solutions.  We’ll start taking a look at these next week…

In the meantime,

Some Management Pocketbooks you might like.

The Strategy Pocketbook

Neil Russell-Jones’ Strategy Pocketbook is stuffed full of handy tips and strategy planning tools.

Also take a look at:

The Business Planning Pocketbook

The Nurturing Innovation Pocketbook

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Balance is everything

So much of western thinking divides the world into four.  You only have to look at management models to see this at its extremes: psychometric profiling, such as DISC®, personality types such as Merrill-Reid or Lifo®, and most common of all, the innumerable “four box models”.  These all have something valuable to tell us, but are all hampered by two features: they allow only four classes in an infinitely varying world and they have to go to great lengths to then assure users that  some admixture of classes is not only allowed, but encouraged.

This is South Korea’s national flag.  It too represents an ancient division of the world into four components; in this case, the four major tri-grams of the I Ching stand for (clockwise from top left): heaven, water, earth and fire.


One model stands out by putting the balance to the forefront and making its four categories the secondary feature of the model.  This is Robert Kaplan and David Norton’s Balanced Scorecard.

Balanced Business Scorecard

In one of Harvard Business Review’s most read articles (it appears in their compilation of ten must-read articles), Kaplan and Norton set out how a business can achieve success by focusing on four different areas; not just on financial performance.

The principles at stake here are simple: if you build a great business, financial success will follow, focus only on the financial metrics and you cannot build a great long-term business, and if you are going to focus more widely, you need to develop measures of success that are as rugged as the well-established financial measured.

It takes me back to my old favourite adage: “what gets measured gets managed” – see the earlier pocketblog: “Are targets a waste of time?

Kaplan and Norton’s four Perspectives

The original article (Harvard Business Review Sept-Oct 1993) looked at a case study of engineering company, Rockwater, whose four perspectives were: financial, internal processes, innovation & learning, and customer.  These have become crystallised to the extent that many businesses take these categories off the shelf.


However, whilst they are valuable for many businesses, the principle of selecting four perspectives that can dictate the future success of your enterprise is far more general than this.  Whether you run a business, a public service, a charity or a small group of people in any sphere of life, the fundamental methodology holds: find your key perspectives and develop the measures that you value most.

A Balanced Scorecard Methodology

Seven steps are all it takes… and a lot of careful thought and involvement of colleagues.  Skipping those tough parts, here it is in a nutshell.

  1. Make sure you have a clear vision and strategy
  2. Find the performance categories that best link your vision and strategy to success (Here are some different examples: service standards, thought leadership, marketing activity, performance management, internal morale)
  3. For each perspective, define a small number of objectives that support your vision and strategy
  4. Develop standards or ways to measure progress and build simple systems to monitor and communicate performance against each perspective
  5. Spread the word throughout your organisation that these measures will drive your reward and promotion mechanisms
  6. Monitor performance and compare it with your objectives
  7. Take action to bring performance in line with your objectives

Some Management Pocketbooks you might like

The balanced scorecard can be used at several levels from strategy to day-to-day operations.

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Time to Plan

Whatever business you are in, and whatever level you occupy, now is the time to be planning for your next financial year.

Start with a Strategy

Every business needs to know where it is heading, and if you don’t choose that direction, it will be chosen for you by circumstances: your market, your competitors, and events.  You can better generate sustainable profits when you choose your market.

On the 24th January 1848, while building a sawmill for wealthy landowner John Sutter, John Marshall bent down and picked up a shining object from the river. It was gold! Then he found another, and then another.

Stories of the gold soon got round but there was no gold rush. Nobody believed the stories. So an enterprising San Francisco merchant, Sam Brannan, decided to capitalise on the find by spreading the word.  Consequently, the Gold Rush made Sam Brannan the richest man in California.

What was Sam Brennan’s strategy for getting so rich?
He sold shovels and pick-axes!

1903776139The Strategy Pocketbook gives you a wealth of tools to understand your business and its marketplace.



Next, you need a plan

By this time of the year, most businesses with a 31 March year end are well into their business planning.  One aspect of the process many of us forget – or feel more comfortable putting to one side – is disaster planning.  Whether you are a sole trader, an SME, or a global player, two things are true:

  1. You are not immune to disaster
  2. You won’t know how well prepared you are until you test your plans.  Don’t wait for nature to set up the test!

The start of your disaster planning process is to identify the threats to your business.  The new edition of the Business Planning Pocketbook offers you three broad categories of disaster to consider, when identifying your risks:


  1. Manmade Disasters
  2. Technological Disasters
  3. Natural Disasters



If you are fortunate enough to own both Strategy and Business Planning Pocketbooks, you can find some nice overlaps.  For example, you could apply PESTLE analysis (in the Strategy Pocketbook) to your disaster identification, to give you not three, but six categories of disaster:

  1. Political
    Okay, so calling the outcome of the next election a ‘disaster’ may be a bit much, but it could have significant implications for your business.
  2. Economic
    Arguably, we are on the way out of this economic disaster, but who knows?  Double-dip anyone?
  3. Social/Cultural
    Demographic trends and changes in the way people buy can destroy businesses – just ask the folk at Readers’ Digest.
  4. Technological
    Thankfully, the new models of computers and software never go wron&.  Bu£ let”s 7u$t t@ke a lo0k a! Toyota.
  5. Legislative
    How can changes in regulation and legislation affect your business?  Large additional costs can be de-stabilising.
  6. Environmental
    Mother nature has a way of hitting us back when we least expect it – and it is frequently below the belt!

So here’s the deal

Start planning for disasters today.  If you have a plan then test it – tomorrow.  And set aside time at least twice a year to get a range of people from within and outside your organisation around a table, to peer round the next bend to spot more possible futures.

Other Management Pocketbooks you may enjoy

Figuring your way through the planning process …

And when it comes to implementation …

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